U.S. consumer spending posts largest gain in nearly six years

WASHINGTON (Reuters) – U.S. consumer spending recorded its largest increase in nearly six years in May on strong demand for automobiles and other big-ticket items, further evidence that economic growth was gathering momentum in the second quarter.

The Commerce Department said on Thursday consumer spending increased 0.9 percent last month, the biggest gain since August 2009, after an upwardly revised 0.1 percent rise in April.

The sturdy increases suggested households were finally spending some of the windfall from lower gasoline prices, and capped a month of solid economic reports.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have been unchanged in April. Economists polled by Reuters had forecast a 0.7 percent rise in May.

It was the latest sign that growth was accelerating after gross domestic product shrank at a 0.2 percent annual rate in the first quarter as the economy battled bad weather, port disruptions, a strong dollar and spending cuts in the energy sector.

From employment to the housing market, the economic data in May has been bullish. Even manufacturing, which is struggling with the lingering effects of dollar strength and lower energy prices, also is starting to stabilize.

The firming economy suggests the Federal Reserve could raise interest rates this year even as inflation remains well below the U.S. central bank’s 2 percent target.

Spending on long-lasting goods such as automobiles jumped 2.2 percent last month, while outlays on services like utilities rose 0.3 percent.

When adjusted for inflation, consumer spending increased 0.6 percent, the largest jump since last August, after being unchanged in April.

Personal income increased 0.5 percent last month after a similar gain in April. Income is being boosted by a tightening

labor market, which is starting to push up wage growth. With households stepping up spending, the saving rate fell to 5.1 percent from 5.4 percent in April. Still, savings remain at lofty levels.

Inflation pressures remained tame last month despite the acceleration in consumer spending. A price index for consumer spending increased 0.3 percent after being flat in April. In the 12 months through May, the personal consumption expenditures (PCE) price index rose only 0.2 percent.

Excluding food and energy, prices edged up 0.1 percent after a similar gain in April. The so-called core PCE price index rose 1.2 percent in the 12 months through May, the smallest gain since February 2014.